Tackling football’s financial goliaths

For insolvency practitioners trying to restructure failing football clubs, the special status of ‘super creditors’ has been a long-standing thorn in the side. These days, it must feel more like a full set of studs in the shin.

Under current Football League rules, clubs in administration or CVAs have to pay off football super creditors first, which include players, managers, other football clubs, the Professional Footballers’ Association and the league – even before preferential creditors, as required by law.

Since the abolition of Crown preference, the Inland Revenue has lost its right to be paid out before the others. It now has to stand in line with the rest of the crowd for what is left after the super creditors have taken their slice.

Exeter City recently learned, to its cost, that the Revenue is not one to be left short when it became the first club to have its insolvency challenged since the changes.

The club has decided that attack is the best means of defence and is suing the conference league for ‘unfairly prejudicial treatment’ over two key football administration rules: the imposition of a 10-point penalty and super creditor status. The rules governing football administration now hang in the balance.

‘The Grecians’ might have thought it would win the backing of other struggling clubs for this act: a football David, taking on the Goliath of the football finance system.

But, far from helping other teams, the conference believes that Exeter’s case threatens its future by jeopardising club’s ability to trade. If football creditors go unprotected, players might refuse to join teams considered to be financially at risk. ‘The whole structure of football trading within itself could be destroyed and Exeter’s action is putting itself at risk,’ says a conference spokesman.

Another factor is undermining solidarity between Exeter and other clubs.

The conference has revealed that it will be funding its defence through a levy on clubs – believed to be around £20,000 each.

That has not helped make Exeter popular among its often cash-strapped competitors. An added sting in the tail is that Exeter City will – on top of all the club’s other financial woes – be forced to fund the case against itself.

When the two sides meet at Bristol High Court on 29 March, it will be the first time that the super creditor rule has faced a test of law.

If Exeter win, it could encourage other clubs to follow the Grecian’s example, in the belief that super creditor status can be overturned on a case-by-case basis.

Change could also be wholesale. The conference says any judgement would be examined and that rules could be rewritten accordingly. According to a spokesman, ‘that won’t necessarily mean the end of the super creditor rule in some form’. But many insolvency experts feel that significant movement would be needed on the issue in the face of an adverse ruling.

The competitions that operate the FA’s super creditor rule – including the Premiership and the Football League – would also be affected by any changes. The FA would only say that it was ‘monitoring these events very closely’.

A victorious Exeter could avoid paying its super creditors, meaning there would be more money available for others – including the taxman. Exeter’s CVA might then survive a Revenue assault on its validity.

But the club could win the battle and lose the war because the conference could still expel it for breaching its rules – whether a judge thinks it unfair or not.

Of course, in David and Goliath situations, Goliath sometimes wins. If Exeter fails in its bid, it will probably go out of business. That could increasingly be the fate of other teams that face administration.

Put simply, Exeter would become the first club to be crushed, vice-like, between the rules of the conference on one side and the Revenue’s determination to collect its dues on the other.

Ian Huxham, managing director of Exeter, says: ‘If a solution cannot be found then any club in financial difficulty will face the same problem as us, should they enter into administration or a CVA. We pray for football fans everywhere that they do not ever find their club in the same position as our beloved Exeter City.’

The problem for insolvency practitioners is that they would be left dealing with two contradictory sets of rules – business and tax law, quoted by the Revenue, and the super creditor regulations, quoted by the conference, football league or premiership.

According to Keith Goodman, an insolvency specialist at Leonard Curtis, insolvency practitioners are in an uncomfortable position. ‘Having to operate within “the rules of the club” rather than the law of the land makes it very difficult to achieve the object of administration,’ he says.

There is a further possibility. It has recently emerged that Exeter and the conference are holding ‘lively but cordial’ negotiations in a bid to avoid the High Court altogether.

Exeter will hope it can negotiate its ‘Goliath’ into standing down. If it does, the super creditor question will have to wait to be resolved another day. With so many clubs on the brink, it seems highly likely a replay would not be far off.

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